ECON 159 - Lecture 20 - Subgame Perfect Equilibrium: Wars of Attrition

Lecture 20 - Subgame Perfect Equilibrium: Wars of Attrition

Overview

We first play and then analyze wars of attrition; the games that afflict trench warfare, strikes, and businesses in some competitive settings. We find long and damaging fights can occur in class in these games even when the prizes are small in relation to the accumulated costs. These could be caused by irrationality or by players' having other goals like pride or reputation. But we argue that long, costly fights should be expected in these games even if everyone is rational and has standard goals. We show this first in a two-period version of the game and then in a potentially infinite version. There are equilibria in which the game ends fast without a fight, but there are also equilibria that can involve long fights. The only good news is that, the longer the fight and the higher the cost of fighting, the lower is the probability of such a fight.

Resources

Assignment

Strategies and Games: Theory And Practice. (Dutta): Chapter 13

Strategy: An Introduction to Game Theory. (Watson): Chapter 16

Problem Set 9

Course Media

Transcript

html

Audio

mp3

Low Bandwidth Video

mov [100MB]

High Bandwidth Video

mov [500MB]